This is the fourth of what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last month in Chicago. For more on this excellent conference, see my October 31, November 5, and November 6 CAB posts.

Managing parallel class and opt out cases in multidistrict litigation is an increasingly common and complicated venture, especially in antitrust litigation, where individual institutional plaintiffs may have a sufficient enough individual stake to justify hiring their own counsel and pursue their own claims. A potential free-rider problem arises in this context because individual plaintiffs have a right under Rule 23(b)(3) to opt out of any class, at least for the purpose of pursuing damages claims. This means that individual plaintiffs and their lawyers can take advantage of the time and effort expended by the named plaintiffs and their counsel early on in the case, only to opt out later and pursue their own litigation without having to share the benefits of any recovery with class counsel.

The panelists seemed to agree that there is an inherent tension between the opt out rights embodied in Rule 23 and the burdens on the courts of managing both class and individual litigation over the same issue. They also seemed to agree that, short of re-writing Rule 23, there is no simple solution to ensure that the parties and attorneys who come late to litigation are not free riders on the efforts of others. Professor Miller raised the question whether these problems suggest a fundamental change is needed in how mass litigation occurs, including a convergence of mass tort and class actions or a recognition that those labels don’t mean anything in the context of certain multidistrict litigation. Alternatively, can existing rules of civil procedure could be used to solve the problem? Whether the solution to this problem is litigation reform, a change in judicial philosophy, or creative solutions already within existing rules, much of the discussion surrounded a very pragmatic question, “What’s the blueprint?”

The allocation of fees and costs between a class and individual plaintiffs raises a host of difficult questions, including 1) can a court force an opt-out to pay a portion of the fees of class counsel? 2) does a court have jurisdiction to require the defendant to pay any portion of any individual settlement with one or more plaintiffs into an escrow account, where a portion of any fee award can be claimed by the counsel for other plaintiffs, depending on the work performed? and 3) if allocation between counsel is somehow permitted, how should non-monetary aspects of settlements be valued, such as agreements to provide a guaranteed source of supply of a particular product?

The judge does, of course, have express case management authority under Rule 16 as well as more general inherent discretionary case management authority. However, the problem in using these case managemnt tools tends to be a lack of information about the precise problems that need to be resolved. Judge Rosenthal pointed out that the judge is typically not in a good position to make that decision without the help of the lawyers because there is usually very little information the economic incentives driving different groups of lawyers. (In what might have been the most quotable quip of the entire program, she implored the three lawyers on the panel, “How do I get you guys to lift up your skirts?”) If there is more transparency by the parties and their attorneys, she argued, a judge would be a better able to allocate costs fairly. Once the problems and incentives are identified, there are case management tools available to incentivize conduct properly, even if a judge does not have direct authority to order one party to pay another’s fees. For example, the judge can help parties to understand the benefits of coordination of efforts voluntarily.

One key question debated by the panelists was whether procedures used in mass tort litigation can be applied to the class action context. On one hand, as one panelist pointed out, the management of class and individual actions in a single MDL raises different challenges than the management of mass tort cases in an MDL. In the mass tort context, one panelist pointed out, all the parties and their attorneys have to be involved in the proceedings from the beginning because of the nature of mass torts as a collection of individual actions. In the class action context, by contrast, individual plaintiffs can wait and see how the class action proceedings develop before having to get involved individually through their own counsel. On the other hand, as with any complex litigation, there are models and protocols that both parties and judges to look to in order to bring efficiencies to the litigation even when not every problem can be solved. While mass tort litigation is not completely analogous it can provide a source of ideas for judicial management of certain problems.

In the end, the point was made that this is not so much an issue of jurisprudence as it is a problem of judicial management. As with any issue with case management, the solutions will develop over time through experience, trial, and error.

This is the third in a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation. Click these links to see the summaries for Session 1 and Session 2.

Session 3: Managing the Mass: Judicial Case Management

As the title suggests, this presentation focused on strategies for judges in managing class and mass actions in different jurisdictions. Professor Axel Halfmeier, Frankfurt School of Finance and Management presented the case study. Professor Ianika Tzankova moderated the panel, which consisted of three highly esteemed judges from three very different jurisdictions: The Honorable Lee Rosenthal, U.S. District Court, S.D. Texas, Sir David Steel, High Court of Justice, England & Wales (ret.), The Honorable Ivan Verougstraete, Former President of the Belgian Court of Cassation and Visiting Professor of Law Georgetown University.

Professor Halfmeier’s case study focused on ongoing mass litigation in Germany involving Deutsche Telekom arising out of alleged acts of securities fraud in the late 1990s and in 2000. The thousands of individual shareholder claims brought by investors in Germany led to the enactment of a new law, roughly translated as the Capital Investors Model Proceedings Act, that provides for the creation of a test case that will be binding on all other similar claims. Proceedings even under the new law have been slow, due in large part to bureaucratic court procedures in Germany, such as the requirement that the documents in each of the thousands of individual cases have to be hand marked by court clerks. The last hearing in Telekom case was held in 2010, and the next hearing is not scheduled to occur until 2012. Meanwhile, securities class action litigation involving the same alleged acts had been brought on behalf of U.S. investors in the early 2000s and was resolved in a global settlement in 2005.

Sir David Steel did not pull any punches with his blunt criticism of the German system, commenting in summary that the “German courts need to join the modern world.” He pointed out that the prospectus fraud claims in the Telekom case are not very complicated and that it should be possible for the courts to deal with them in a much shorter period of time. He pointed to a number of simple procedural reforms that might have sped up the Telekom litigation, including reform of cumbersome clerical requirements, the imposition of a time bar for claims (he pointed out that the German proceedings had not even been commenced until 2005, roughly 5 years after the event), and rules relating to case assignments (by the time the case was ready for a ruling, the initial judge assigned to the case had reached retirement age), and discretion to impose reasonable pleading deadlines (the plaintiffs were allowed to introduce new claims as recently as 2010). He concluded by likening the Telekom case to the fictitious decades-long Jarndyce v. Jarndyce will contest in the Dickens novel Bleak House, which had spurred judicial reforms in the UK in the Nineteenth Century. It should be noted (although not discussed specifically during his remarks) that Justice Steel himself has a proven track record of efficient management of mass litigation in a jurisdiction that does not permit class actions. As an example, he presided over the Buncefield case, a mass tort action arising out of gas pipeline explosions in December 2005. The case reached a judgment in March 2009, only three years and three months after the explosions giving rise to the claims.

Judge Verougstraete offered a counterpoint to Justice Steel’s criticisms by pointing out the significant cultural differences between the common law system in the UK and the civil law jurisdictions in Continental Europe. He went on to point out various constitutional, cultural, and practical barriers to significant judicial case management reforms in European civil law jurisdictions, including: 1) the individual’s right to his day in court is of paramount importance in European jurisdictions and cannot be discarded in the interest of judicial efficiency; 2) discovery reforms are not a solution in Europe because most European jurisdictions do not allow parties to engage in discovery anyway (he noted, however, that judges do have some level of control over the speed with which court-appointed experts and masters complete their investigations and findings); 3) while settlement and alternative dispute resolution procedures are theoretically possible, they haven’t worked yet in speeding the resolution of many mass actions. Judge Verougstraete also pointed to two possible alternatives to collective litigation in civil law countries: 1) use of the criminal law complaint, which places the financial cost of redress on the State but also cedes control over the litigation; and 2) bundled litigation, although even in bundled litigation, the requirement to provide individual notice to litigants often minimizes the judicial efficiencies created by joining claims together, as was seen in the Telekom matter. In closing, although he agreed with Justice Steel that civil law jurisdictions in Europe could benefit from legislative reforms streamlining judicial procedure in mass litigation, he warned that there was still the problem of legal tradition and culture, which cannot be changed overnight.

United States District Court Judge Lee Rosenthal focused her remarks on what jurisdictions with developing complex litigation procedures can learn from the experience of the United States. While the United States has a well-developed body of rules governing case management of complex litigation, U.S. Courts still have problems in managing complex litigation, and we “haven’t gotten there” in terms of perfecting efficient management of complex litigation. Judge Rosenthal agreed that there is a divide between civil and common law jurisdictions but argued that there are a lot of things that a judge can do in either type of jurisdiction manage cases. She provided examples of key areas where courts and policymakers need to focus in evaluating effective case management techniques: 1) early and effective court supervision; 2) cooperation by counsel; 3) development of a case management plan cooperatively between the court and counsel; 4) communication between counsel, the court, and both representative and absent parties; 5) effective management of electronic discovery issues (notably, Judge Rosenthal is one of the foremost thought leaders on e-discovery issues in the United States); 6) management of attorney’s fees awards (this is a topic addressed by Judge Vaughn Miller in Session 2); 7) effective trial planning; 8) if there is a settlement, an effective plan for assessing and administering the settlement. She went on to point out that although many judges are much more comfortable in a passive role (decision maker) rather than active role (manager), effective case management requires a judge to carry out both of these roles at appropriate times. In other words, a judge must be both a neutral decider and an effective case manager. An effective case manager also has to be both flexible and pragmatic. Despite having the tools for effective case management, Judge Rosenthal admitted that many judges in the United States are still viewed as being ineffective case managers. In summarizing the experience of the U.S. judiciary, Judge Rosenthal opined that the United States has the tools in place for effective case management, but U.S. courts are still far from institutionalizing effective case management techniques.

As one member of the audience observed during the question and answer portion of the presentation, the three panelists represent the cream of the crop in their respective judicial systems, both as case managers and as jurists. Judges from around the world have a lot to learn from their pearls of wisdom.